Fixed rate loan

A fixed rate loan is a lending arrangement in which the interest rate charged does not change for the life of the loan. In this situation, the lender is taking on the risk that the market rate of interest will vary from the rate embedded in the loan. In an adjustable rate loan, where the interest rate changes in relation to market rates, the borrower takes on the risk of changes in interest rates. A fixed rate loan can be quite beneficial for a borrower when market rates are low, since this rate may turn out to be much less than market rates in subsequent periods.